Re-Examining Capitalism (Jamie Galbraith)

National Journal Online had an interesting forum under the title Re-Examining Capitalism. Here is the introduction to the forum, from John Maggs:

Do recent events suggest that the tenets of capitalism and free market theory need to be re-examined? The New York Times has suggested that not much soul-searching is happening yet at economics departments. Does the financial meltdown, the housing bubble, or the over-leveraging of businesses and consumers, point to fundamental flaws in market-based capitalism? Does it point to particular alterations?

Here’s Jamie Galbraith’s response (it’s from a few weeks ago–h-t to LF for letting me know about it):Responded on March 19, 2009 9:32 PM

James K. Galbraith, Professor of Economics, University of Texas

The Bourbons. They learned nothing, and forgot nothing. Came the revolution.

Some of my colleagues’ responses below beautifully typify the attitude of many academic economists: Nothing to see here. Just move along.

As Michael Bernstein tells in “A Perilous Progress,” in late 1915 a member of the American Economic Association wrote the president of that eminent group, about the agenda for that year’s scholarly meetings. He noted that “[his colleagues] are a ‘rather impractical lot. Here is a world crisis, the greatest in half a thousand years, or more’—and economists do not even deign to discuss it.”

Nothing changes. Early this year, the American Economic Association again sponsored meetings. Again a great crisis was barely discussed.

Hardly a single “mainstream” economist predicted this crisis. Most have based their entire professional careers on the assumption that such things do not—cannot—happen. Very few have had anything new or useful to say since the crisis broke in August, 2007. And if they did, what difference would it make? Why should the rest of the world take them seriously now?

Capitalism is unstable. At one time, the effort to understand this was central to economics. But so far as mainstream academic economics is concerned, that effort stopped long ago. Worse, it has been repressed. For decades, “mainstream” departments have excluded the works of John Maynard Keynes, of Hyman Minsky, of the elder Galbraith and similar authors from their reading lists. For decades, they have ridiculed Keynesian research, and they have systematically blocked Post Keynesian economists, institutionalists, and other independent thinkers from advancing to tenure.

University administrators need to face up to this. What function, exactly, is served these days by their economics departments? What good are they? Yes, they are full of bright people. But they are so professionally narrowed, that they can respond to present events only with bewilderment and denial.

At the February hearings before the House Financial Services Committee on the Conduct of Monetary Policy, two distinguished economists, Alan Blinder of Princeton and John B. Taylor of Stanford, agreed that even last summer “nobody could have predicted” the crisis that broke last fall.

Except, of course—as I pointed out—the non-mainstream economists who did.*

Cassandra was always right. But nobody ever believed her, and this is the position of the dissident in academic economics today. Will anything be done about it? The question poses an interesting test—not only for academic economics, but in some ways, also, for the future of capitalism itself.